Europe’s energy crisis threatens to bolster Ukraine

Factories, businesses and families across Europe are fighting for survival as Russia’s stranglehold on the continent’s natural gas supply drives prices to astronomical highs, unleashing a brutal economic storm that will tested European solidarity in the face of Russia’s war in Ukraine and stoked fears of an impending recession.

Extremely high energy prices have soared to 10 times their average level over the past decade, driving spikes that have strangled industries and left households scrambling to pay their bills. The resulting bloodbath has catapulted European leaders into emergency action as they rush to institute sweeping emergency measures in a bid to drive down prices. Brussels speaks of gas rationing; national governments are racing to find alternative supplies now that Russia has essentially cut off a third of the continent’s gas supplies as part of its campaign to make Europe cry before Moscow’s bogeyman forces completely disappear in Ukraine.

“People have incredibly high electricity bills. Small businesses are struggling to pay the bills. Factories are considering closing or reducing production,” said Ben Cahill, senior fellow at the Center for Strategic and International Studies (CSIS) “And that’s before winter hits, so it could get worse.”

Factories, businesses and families across Europe are fighting for survival as Russia’s stranglehold on the continent’s natural gas supply drives prices to astronomical highs, unleashing a brutal economic storm that will put European solidarity to the test on Russia’s war in Ukraine and fueled fears of a recession.

Extremely high energy prices have soared to 10 times their average level over the past decade, driving spikes that have strangled industries and left households scrambling to pay their bills. The resulting bloodbath has catapulted European leaders into emergency action as they rush to institute sweeping emergency measures in a bid to drive down prices. Brussels speaks of gas rationing; national governments are racing to find alternative supplies now that Russia has essentially cut off a third of the continent’s gas supplies as part of its campaign to make Europe cry before Moscow’s bogeyman forces completely disappear in Ukraine.

“People have incredibly high electricity bills. Small businesses are struggling to pay the bills. Factories are considering closing or reducing production,” said Ben Cahill, senior fellow at the Center for Strategic and International Studies (CSIS).” And that is before winter has comeso it could get worse.

of the energy guzzler aluminum industry at fertilizer manufacturerscompanies across Europe have been forced to reduce production or even go bankruptcy at exorbitant prices. To protect households and businesses from greater pain, governments have channeled hundreds of billions dollars in grants, huge sums of money that reflect the dire economic situation on the continent and the unprecedented nature of the crisis.

“We’re not in any sort of normal set of market conditions. These are extreme market conditions,” said Alex Munton, an expert in global gas markets at Rapidan Energy Group, a consultancy, who described the situation as an “energy war.” For decades, Russia has supplied a huge amount of affordable natural gas to the European Union, but these supplies have become a victim of Russian President Vladimir Putin’s attempt to subjugate Kyiv and the countries that support it. So far, despite ripples of discontent, European governments are holding their ground.

“In times of war…that’s the kind of thing [governments] do,” he added. “They will stretch their finances to the limit to get through the conflict they find themselves in.”

Take the European Commission, which has proposed sweeping emergency interventions that would redistribute around $140 billion in windfall taxes to cash-strapped businesses and households. The UK also unveiled a $46 billion bailout while Sweden announced more than $20 billion in liquidity guarantees for its struggling energy companies. As German energy companies are pushed to near bankruptcy, Germany is set to nationalize three major gas giants, including Uniper, in a historic intervention that would help save them from the abyss.

Growing economic losses have “brought these businesses to their knees financially,” Munton said. Unrelieved, he added: “At some point things reach a breaking point, and that’s kind of where we have to get to.”

Public frustration is already bubbling in the UK, MoldovaGermany, Austria and Italyas protests erupt over soaring energy and fuel costs concerns wider troubles. In Prague, no less than 70,000 people took to the streets in early September in a Czech Republic first demonstration against the rise energy price as well as to demand greater government action.

“There’s a mass of people forming who are scared of what’s going to happen next winter, and they’re scared not only because of energy prices but also because of the rising inflation that we have had over the past year. [in the Czech Republic]said Jan Kovar, deputy director of research at the Prague Institute of International Relations, a think tank. Foreign Police.

As anger over skyrocketing energy bills grows, European solidarity wanes. This is bad for Brussels and for continued European support for Ukraine’s defense against Russian invaders. Even as leaders publicly pledge support for Kyiv, protesters’ calls for greater neutrality in countries like the Czech Republic could lay the groundwork for future rifts in unity. Hungary, a member of the European Union, has been in Moscow’s pocket since day one. Germany has been lukewarm on the whole business from the start. Italian businessmen recently staged a protest against high electricity bills, blaming Brussels – not Putin – for their plight.

Cahill, the CSIS expert, said European nations could face a major test of political unity if instability continues to grow.

“If prices stay very high and the market looks very tight this winter, then political stress will increase,” he said. “You could potentially have a situation where citizens get really unhappy and start blaming governments for it, and maybe governments start going their own way and looking out for their own interests. Maintaining this European solidarity will be difficult.

As winter approaches, countries have so far met targets for their storage facilities, although it is unclear whether this will be enough to sustain the continent through the winter with l almost complete stoppage of Russian gas flows. Much of Europe’s winter energy outlook will now depend on energy demand; the countries’ abilities to guarantee the supply of liquefied natural gas to countries like the United States, especially as other buyers turn to the same quantities during the colder months; and the weather.

“If the winter is mild, it will be easier to live without Russian gas. Cold winter, it will be a winter of discontent,” said Helima Croft, managing director of RBC Capital Markets. “It won’t be easy either way, but a cold winter is potentially a lights-out situation.”

But moral hazards also lurk in the radiator. Europe’s efforts to protect consumers from substantial pain and to combat soaring prices could erode a crucial price signal that would contribute to seriously blunting demand.

“By potentially adopting measures that could address the very high costs to the consumer, one of the obvious effects of this will be to reduce the incentive for consumers to consume less,” Munton said. “It does nothing to alleviate this fundamental mismatch between supply and demand. On the contrary, it somehow bolsters demand while the supply side of the equation still faces real challenges.

So far, the Russian economy appears to have been spared the worst of the energy war, shielded by soaring oil and gas prices and its own oil export earnings. In the long term, as Europe finally finds alternative suppliers and Russia loses its main export market, the balance of power will change. There simply isn’t enough physical infrastructure for Russia to pivot all of its sales to China, even if the demand was there; in the meantime, Russia is burning its own natural gas rather than selling it.

Russia is “fading out of European markets,” said Antoine Halff, an energy expert at Columbia University’s Center for Global Energy Policy and former chief oil analyst at the International Energy Agency. For a country that derives more than 40% of its government revenue from energy sales, cutting off Russiait is main export market is a drastic step and, at this stage, perhaps irreversible. Over time, this will weaken Russia’s ability to wreak havoc.

But the long term is different from an impending winter without fuel.

“As far as energy markets are concerned, the next few months are quite unpredictable, partly because this is not an unprecedented situation,” Halff said. “It’s pretty uncharted territory.”

Amanda Coakley contributed reporting for this article.

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